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Royal Mail shares plummet as it posts downward earnings revision

The company now expects group underlying earnings to decline to between £500m and £530m, compared with £694m last year.

Royal Mail shares plummet as it posts downward earnings revision

Shares in Royal Mail have plummeted after the company warned that letter numbers by volume will be lower than expected next financial year.

Royal Mail said that letters by volume dropped 8% over the nine months to 23 December, with letter revenues down 6%.

 

It attributed the volume drop in part to the impact of the General Data Protection Regulation (GDPR) as well as "business uncertainty" in the run up to Brexit.

The company also confirmed that it expects group underlying earnings to decline to between £500m and £530m, compared with £694m last year.

This projected earnings fall comes after Royal Mail warned of a fall in annual profits last October.

The stock market reacted badly to Royal Mail's trading statement and shares were down by over 13% by the close.

Overall, Royal Mail reported a 2% rise in underlying revenues for the period, held up by an 8% revenue increase at its General Logistics Systems (GLS) division, which offset a 1% fall in its UK parcels and letters arm.

 

Royal Mail group chief executive Rico Back said: "We have had a busy Christmas season.

"In the UK we recruited 23,000 seasonal workers and opened six temporary parcel sorting centres to make sure we had the capacity to handle the high volumes of parcels and cards through our network.

"In the December trading period alone we handled 164 million parcels, up 10% compared with last year."

Royal Mail offices will have flags on display
Image: Royal Mail said it handled 164 million parcels in December 2018, up 10% the previous year

Mr Back added: "Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of 7% to 8% for 2018-19.

"While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes.

"As a result, addressed letter volume declines, excluding elections, are likely to be outside our forecast medium-term range next year.

"Otherwise, we are reconfirming the outlook and other guidance for 2018-19 provided in our half-year results."

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown said: "The continuing collapse in letter volumes is the big news in these numbers.

"Royal Mail's gone out of its way to say that's down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather an uptick in companies using email rather than paper.

"Whatever the cause, we suspect those mailings are gone for good."

"News that the capital markets day has been pushed back to after full year results suggests to us that the all-important cost savings may also be proving harder to deliver than hoped.

"Those efficiency gains remain central to the Royal Mail investment story, and if they can't be delivered then there's nothing to protect the group from the pains of an economic downturn in the UK."

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